Thu 2009-11-19 10:12 EST

Business & Technology | Part one | Reckless strategies doomed WaMu | Seattle Times Newspaper

Drew DeSilver

In its headlong pursuit of growth, WaMu systematically dismantled or weakened the internal controls meant to prevent the bank from taking on too much risk -- the very standards and practices that had helped it grow in the first place. WaMu's riskiest loans raked in money from high fees, but because the bank skimped on making sure borrowers could repay them, they eventually failed at disastrously high rates. As loans went bad, they sucked massive amounts of cash that WaMu needed to stay in business. WaMu's subprime home loans failed at the highest rates in nation. Foreclosure rates for subprime loans made from 2005 to 2007 -- the peak of the boom -- were calamitous. In the 10 hardest-hit cities, more than a third of WaMu subprime loans went into foreclosure.

business; part; Reckless Strategies Doomed WaMu; Seattle Times Newspaper; Technology.

The Economic Populist - Speak Your Mind 2 Cents at a Time Sat 2009-10-10 12:53 EDT

Proposal: A New Mortgage Finance System

Our mortgage finance system is broken. It needs some serious restructuring or a complete overhaul. We can learn a lot about a new structure from the Danes. The Danish mortgage system is one of the oldest and most sophisticated housing finance markets in the world...Danish mortgage system is a pass-through system that allows mortgage borrowers to benefit from close to capital market financing conditions. In the Danish system, borrower/homeowner don't obtain a mortgage from a mortgage loan originator such as a bank or mortgage lender. They borrow from investors in a transparent and standardized bond market through a mortgage credit institution (MCI). MCI issues bonds in the bond market that match as much as possible the amount and maturity of the borrower's mortgage. The beauty of this system is that a mortgage is exactly matched and balanced with an actively traded bond. MCIs play the vital roles of advisors to the borrower/homeowner and bearer of the credit risk of the mortgage -- they remain ``on the hook'' in the event of delinquency or default. They are mortgage credit insurers. The MCI originator bears full responsibility for timely payments from the borrower/homeowner. So, MCI has an incentive to make sure borrower/homeowners obtain a mortgage loan that is affordable for that family. Meanwhile, bond investors worry about only interest rate risk, with complete insurance on the mortgage that backs the their bond investment. This makes for a highly efficient system.

economic populist; Mind 2 Cents; New Mortgage Finance System; proposed; speaking; Time.